Small-Business Contracts Fall to Record Low

The percentage of federal contracting dollars that went to small businesses in 2005 fell to a record low of 17%, according to new data released by Eagle Eye Publishers, a Fairfax, Va.-based firm that helps vendors build relationships with government buyers.

Congress recommends that at least 23% of prime federal contracts be awarded to small businesses, although the government has fallen short in the past. According to Eagle Eye, in fiscal year 2005, Uncle Sam awarded $377.5 billion in contracts -- $65 billion, or 17%, of which went to small businesses.

The Eagle Eye findings were based on information from the General Services Administration's Federal Procurement Data System and the Department of Defense. While the government's figures exclude contracts that are carried out abroad, funded by foreign governments, and all Transportation Security Administration deals, Eagle Eye includes these numbers in its calculations.

"I believe these contracts are left out to puff up the numbers for small businesses," said Paul Murphy, president of Eagle Eye. "I believe the Department of Defense is what's driving the small business share down." In 2004, for example, the SBA reported that the percentage of federal contracting dollars was 23%, but Eagle Eye's calculations came out to 20%.

Of the top 100 small-business contract recipients, about one-third of them were actually large firms, according to the American Small Business League, a Petaluma, Calif.-based advocacy group and vocal critic of the government's contracting procedures. Murphy claims those numbers are closer to 10-20%.

There are legitimate reasons why large businesses would make up a part of the small business recipients list, according to Murphy. The most common reason is that a large business acquired a small business that had a contract already awarded. In this case, government spending follows the contract, not the company. Another reason is when no small businesses qualify for a particular contract and it was then awarded to a large business to complete the job.

However, "agencies need to rigorously study all the data and assess their compliance with the overall goal," Murphy said.

While the SBA wouldn't comment on the study, officials did say that they have received data from the Federal Procurement System and are currently reviewing the numbers themselves.